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The public finances are in a “challenging state”, a senior Cabinet minister has acknowledged amid speculation Rachel Reeves could hit the wealthy with tax hikes in the Budget.

Health Secretary Wes Streeting admitted there were issues with the economy and said households were also feeling the squeeze.

But he insisted there were “green shoots” of economic recovery “but we’re not out of the woods yet”.

The Mail on Sunday reported Ms Reeves is considering a new mansion tax which would hit owners of properties with an annual charge of 1% of the amount by which its value exceeds £2 million, meaning a £10,000-a-year levy for homes worth £3 million.

The Sun on Sunday suggested she was considering a manifesto-busting 2p hike to income tax.

Mr Streeting said he would not be drawn on “wild speculation about the Budget” ahead of Ms Reeves’ statement next month.

He told GB News: “We’re going to wait for the Chancellor to set out her Budget. People can see the public finances are in a challenging state.

“So is the economy, but also so are family finances, so are business finances, we recognise that, we’ve got to get our economy growing again.”

The UK had the fastest economic growth in the G7 in the first quarter of 2025 but the International Monetary Fund (IMF) forecasts suggest the US will outpace Britain across the year.

Mr Streeting said: “There have been some encouraging signs in terms of interest rates and the UK projected to be the fastest-growing economy in the G7, those are all things that are cause for encouragement.

“But we’re not out of the woods yet. The Chancellor has got a challenging job. She’s got lots of considerations to balance and she will set out her choices at the Budget and not before.”

Mr Streeting told Sky News: “I think there are green shoots of recovery in the NHS, in the economy, in our public services, but there is also so much more to do, and we’ve got to attack those challenges with the level of energy and focus that the scale of the challenge demands.”

Ms Reeves is likely to face raising taxes and cutting spending to fill a black hole in the public finances when she delivers her Budget on November 26.

Economists have suggested she will need to find between £20 billion and £50 billion to meet her goal of balancing day-to-day spending with tax receipts in 2029/30, and at least maintaining her current buffer of around £10 billion against that target.

Ms Reeves has hinted the task will be made more challenging by the Office for Budget Responsibility downgrading its assessment of productivity growth.

The historically small buffer Ms Reeves has left herself against her self-imposed fiscal rules means it can be wiped out by relatively minor variations in Budget forecasts, leaving her scrambling for savings or extra tax revenue.

Former Bank of England governor Lord King was critical of the Chancellor’s “back of a fag packet” approach.

He told Sky News’ Sunday Morning with Trevor Phillips: “You don’t solve that problem by just adding another wealth tax to it.”

He suggested if Ms Reeves wanted to look at the tax system she should appoint a panel of experts to take time to examine the issues and “come up with a coherent view”.

But he said: “That doesn’t seem to happen. What happens is the OBR produces just before the Budget, a number, one number, and then they look round for, you know, ideas, almost written on the back of a fag packet about how you can raise an extra few billion or a few billion there.

“That is not a coherent tax strategy. And you could do a great deal by thinking it through first.”